Sunday, October 13, 2013

Socialism vs Capitalism vs Mixed

Another sub-discussion within the MinnPost Warren piece

"Economic model. Well, we've never been either capitalistic nor socialistic. The issue is really just the dividing line between the two. How much capitalism or how much socialism do you put into the mix? Personally, I feel that sometimes you need more of one and sometimes you need more of the other. It all depends on what problem you're facing at the moment and which model provides the better solution. In a lot of cases, it's a combination of both and not one or the other."

The whole "capitalism is better than socialism" is a non-starter in my book, much like the people who go on about Microsoft vs Apple and vice versa. You should look for the best solution full stop, not the best solution within your ideology." Todd Hintz

"Large and diverse. Please tell me about a successful large and diverse socialistic country." G2A

"According to you, the United States. One might add the EU, though they're going through a rough spot right now, which may have started with their investment links to our housing bubble." Paul Brandon

"Economies. John, you appear to have missed the point entirely. Did you read and comprehend my post? The main thrust was to point out that you shouldn't be wedded to one ideology or another, no matter what it is. As a counter argument, can you name one successful large and diverse capitalist country?

Correct me if I'm wrong, but you seem wedded to the concept that capitalism is good and socialism is bad, full stop. If my perception is not correct, can you give me the pros and cons of the two economic models? I'm trying to get some sense as to whether or not you understand the implications of adopting one ideology over another and limitations of taking such a myopic point of view." Todd Hintz
G2A Continuum
G2A Spending Trends

I guess my answers are:
  • Though always somewhat of a Mixed economy, the continuum and trends indicate the USA was a very strong leaning Capitalistic country in the early 1900's. Then we started the shift leftward on the continuum.  Now we are headed towards what we defined together as a Social Democracy. (ie France, N. Europe, etc) At least it seems that is where the Liberals would like to take us? I guess my view is that the USA was doing much better when it was more Capitalistic.  I even defended my Moderate status by saying that if a 25% total spend (1950) was too low and ~38% (2013) too high, then let's strive to get back to the average of 31.5%.
  • The reality is that Socialism has been tested in 2 large diverse countries and it was proven as a HUGE FAILURE. (ie USSR and China)  Trust me, China may be a "Communist" country...  However there is almost nothing socialistic about it anymore.  On my visit, I asked about things like healthcare and was told that they have to pay for insurance, and Lord knows I have never seen so many high end cars. (ie Rolls, BMWs, Mercedes, Range Rovers, Audis, etc.)
  • In summary, I think a Mixed Economy that errs to the side of Capitalism is better than one that errs towards Socialism.


jerrye92002 said...

Let me tell you why I believe as I do:

We were traveling with my folks in Southwest Texas, a countryside that, as my Dad says, "is so poor the jackrabbits carry knapsacks." We came to a little Texas town and noticed it was a little dusty, but reasonably and surprisingly prosperous-- supermarket, gas stations, an assortment of bars and other businesses lined the main street, and the residences were humble but seemingly well-kept. Then we took a left turn, went across a rickety old iron bridge over a little trickle of water maybe 12 feed wide and about a foot deep, at most. It is called the Rio Grande and on the other side is a little Mexican town. But they are hardly the Twin Cities. The streets are unpaved and the few cars on the street are literally wired together, if they are together at all. The kids are walking the street, barefoot and selling tortillas to the few turistas. The chickens pass easily in and out of the raw stucco houses because there are no doors or windows.

Why this shocking difference? Surely it isn't the land or the weather, because that is the same on both sides-- dirt poor. Surely it isn't the people, because that little trickle of water isn't a barrier and never was. No, the difference is that the US had a period of unbridled capitalism, up until the 1930s and diminished only slightly until the 1960s. During that time we built the railroads, the mills and mines, and invented electricity, automobiles, planes, and a world of other wonders and PROFITED from them. Those who got rich endowed the great charities and institutions of higher learning, leading to more "capital" that was built upon for future economic growth. Mexico never had that period of unbridled capitalism, and that has made all the difference. They weren't socialist, either, but capitalism is what matters because it is the most successful economic system going. Yes, a little regulation can make it better, but we are so far past that point that some people are calling us socialists, now. It's getting to the point where China is more capitalist than we are!

Sean said...

Of course, many of the great accomplishments of capitalism you cite were assisted greatly by government. The railroads, for instance, were financed by government bonding and land grants. (Fully 7% of the Continental U.S. was given by the government to railroad companies, at an estimated value of 13% of GDP.)

That's not to say that capitalism is bad or socialism is better, but rather that one shouldn't romanticize either method but rather look critically at areas where government involvement exists and can have merit and areas where it should stay out.

John said...

I agree and it seemed Elizabeth agreed.

"It’s not complicated. Our government has three basic functions: Provide for the national defense, put in place rules of the road – like speed limits and bank regulations that are fair and transparent, and build the things together that none of us can build alone – roads, power grids, schools – the things that give everyone a chance to succeed." Elizabeth Warren

As Jerry said, we seemed to do really good at this until the mid-1900's, and then someone decided that "wealth transfer" should be another role of government. Somehow the politicians were to become "Solomon" to determine and enforce "what is fair"...

I guess my view is pretty simple. In many groups there is some percentage of people who are happy to freeload on the efforts of their peers. You experience it at work... You experienced on group projects in school... You experience it at the School PTA... This is just a fact of life.

Somehow though the Liberals think that everyone is intrinsically motivated to give it 100%... They live in some ideal world where free loaders and criminals don't exist. Therefore instead of making life difficult for these folks and encouraging them to become productivitive citizens, they seem to just want to cut them a check on someone elses bank account. It makes no sense to me...

John said...

I wonder if these folks actively encouraged their teacher to give the "team freeloader" an "A" even though the freeloader skipped the project work sessions and added nothing to the final presentation???

John said...

Our do they encourage the Boss to give the Wally on the team a good raise just because it is fair...

Sean said...

You act like the idea of "wealth transfer" just appeared out of the blue for no reason. That's just not true.

The reason we have programs like Social Security and Medicare are because society was having problems with taking care of large numbers of poor elderly persons. Private charity was proving insufficient to solve the problem.

Now, you may think it's the wrong solution to the problem, but you can't rewrite history and claim everything was peaches and cream until those darned liberals messed it all up.

John said...

As I have said before and will say again. I have nothing against social security and medicare as long as they keep raising the payroll tax rates to stay in alignment with the planned benefit.

Unfortunately they have let the "expected payout" far exceed the trust funds "premiums and investment gains. Which means that the SS Disability trust reaches $0 in ~2016, Medicare trust reaches $0 in ~2024 and the SS retirement reaches $0 in ~2033.

At which time receipts will much less than disbursements. And then 4 things can happen:

1. Make up funds are transferred from the general fund, or the payroll tax income cap is removed w/ no additional benefits given for the additional contributions. Both turn them into a form of welfare. (ie wealth transfer) {taxing or denying wealthier people their "promised" benefits fits into the same category.)

2. We reduce the benefits by raising the retirement age, or by just capping the benefits.

3. We raise the payroll tax rate to match the "promised" benefit.

4. We re-think it along the GOP lines. Which I disagree with because many people find it hard to save. And we are not willing as a society to let them live with the consequences of their actions. So maintaining the forced savings/insurance seems to make sense.

I agree that apparently "it was not working" in the 1930's... Yet it does not seem to be working now. The poor are still with us. We are just spending more... Thoughts?

John said...

FYI, do you remember that "Payroll Tax Holiday"? That was a vision of things to come.

They reduced the FICA rate for employees and then transferred make up funds from the general fund to the Trust Funds. So already the Trust funds are carrying "tax the rich" assets...

So much for them being stand alone programs.

John said...

One more note SS Retirement we could maybe manage. However SS disability and Medicare are out of control...

And of course we have not even discussed Welfare and Medicaid... Which is money going to many people who could be doing something for it. Keep America Beautiful

Sean said...

Pre-SS, the elderly were the most likely to be below the poverty level. Today, they are the least like age group to be so. Sounds pretty effective to me.

Do we need to fix Medicare? Sure. But can we talk about doing so in a way that leaves the Randian language out of it? The world ain't as simple as makers and takers.

John said...

Though as I have said before, Rand's work describes 2 ends of the continuum. Looters/Moochers on the far Left and Producers/Makers on the far Right... (ironic isn't it) Then there are the majority of us who reside and move around within the boundaries. Sometimes changing roles depending on the situation.

When many folks end up with a 0% or negative effective tax rate (ie after benefits) while others are paying nearly 30% to pay for those benefits. I do not think one can totally discount Ayn's concepts.

The question again is if "pure capitalism" (ie 1900) is bad. And "socialsim" (ie USSR & old China) is bad. Where is the sweet spot that provides temporary safety nets while ensuring people carry their own weight.

Personally I think we have shifted too far to the Social side.
Begins Comic
Ends Comic

Laurie said...

Maybe the sweet spot is wealth distribution more similar to Sweden.

Study: Most Americans want wealth distribution similar to Sweden

Laurie said...

Maybe our modern economy is more complex then your 2 pole model.

Maybe if we don't want to have a The Task Rabbit Economy there are many policy tools we should be using.

John said...

A continuum includes the 2 poles and every variation between them.

It was too long and I am too tired... I'll try reading it again tomorrow.

The questions still remain:

How do we get American consumers supporting American workers?

How do we stay cost competitive with nations that very much want what we have?

Remember what I said about Sweden during my trip. The majority of cars were Volvo, and that did not save Volvo... They are now owned by a Chinese firm... And Saab is defunct. Only time will tell if the Swedish method survives.

A lot will depend on how many are riding in the trailer vs how many are pulling...

jerrye92002 said...

John, you keep talking as if the Social Security and other "trust funds" are real, liquid investments and that "bankruptcy" of these programs for these programs is years away. It's not. Social Security right NOW pays out more than it takes in, and has for a few years. That means the three scenarios you paint-- raising taxes, lowering benefits or taking money from the (bankrupt) general fund-- are already taking place and it will only get worse. I think the question you should be asking is: Are these programs the proper function of government at all, and is there a better way to do them if not? The only reasonable answers are no, and yes, respectively. There is absolutely no excuse for breaking the promises made to current or prospective retirees by raising the taxes (like increasing the base without increasing the benefit), cutting benefits (like raising the retirement age), or borrowing from the general fund (which is already a ticking fiscal bomb).

Time has already run out several times in the last 20 years, when these transitions to more sensible systems could have been made slowly and sensibly. Now it's going to be a little painful. But instead of putting everybody's FICA into the big pit of SS, why not just put everybody's FICA-- in increasing percentage based on years from retirement-- into personal IRA-like investments? Higher payouts, greater economic growth, the "unfunded liability" slowly disappears rather than getting bigger. Medicare and disability should be turned into premium support programs that gradually turn into mandatory HSAs, and that solves THAT problem.

The only reason these problems aren't solved already is because the Leftists-- aka socialists-- among the political class don't want the best solutions, only THEIR solutions.

Anonymous said...

What the proper function of government is, is determined by statute. By the way, Jerry is right, Social Security is paying out more than it's taking in. Ironically, by doing that, SS is doing something many conservatives approve of, that is reducing the national debt. That's because the bonds that were accumulated during the surplus years, are now being cashed in.

Bear in mind that we call these programs "entitlements" for a reason. We are entitled to them. No one is entitled to a tax cut.


John said...

I know we disagree on where the Trusts Funds chose to invest their assets. (US Bonds) However they did invest them and are now redeeming them quickly. This was the intent and it is working for now.

And yes this means the entity they invested in needs to raise cash to pay them off. But don't pick on the Trust Funds because the other areas of government took on the debt and now have to pay it back.

Now why in the world should we honor the "promises" to the recipients? Their premiums paid were obviously inadequate to fund the "promises"... They did not pay enough, so why should they get more than they paid for?

I mean, they invested in a "ponzi scheme" like Madoff's, did we bail all those investors out?

John said...

We are not reducing the debt... We are paying off one creditor and borrowing more from another... Good try though.

Remember the Supreme court ruled that no citizen is legally entitled to getting their money back. The politicians could change the game anytime and be perfectly within the law. Of course, they would not be very popular.

John said...

Which also happens when politicians raise the taxes on people.

jerrye92002 said...

The SS trust funds are invested BY LAW in a special series of US bonds, paying a very specific (low) rate of interest. The money to "buy" these bonds came from the excess of SS taxes collected. The money was then spent by Congress. So, essentially, you have a bookkeeping entry in the federal ledger that declares that money long gone is an "asset" that can later be sold for its increased value. It's like those grocery coupons you cut out, giving you a dollar off if you buy their product, but has a "cash value of 1/100 cent."

There have been suggestions in the past that these SS funds should be invested in the stock market for a greater return (even government recognizes it). THAT would indeed be an investment and would represent a real asset for retirement, but there are two problems with it: first, that the federal government already invests in companies-- Solyndra comes to mind-- and does it very poorly; we don't need that additional market distortion, and second, it still doesn't confer ownership of the retirement asset to the individual who paid for it, as an IRA or privatized SS system would. Minorities, in particular, should be hopping mad about the current system. Since their lifetimes are shorter on average than white folks, many of them pay in for decades and then die just before starting to collect benefits and their families get NOTHING. That's not a retirement plan OR an insurance plan, it's another socialist utopian dream/nightmare.

jerrye92002 said...

Interestingly enough, if we followed the Chilean model of SS reform, the first thing we would do is to hand out those bonds, on a pro-rated basis, to the individuals who had paid into it, to start their private retirement accounts. At that point, those bonds would immediately become a real and liquid asset!

Sean said...

Transition costs for the Chilean model were very high. In current U.S. dollars, they spent between $600M and $1.1T annually for 15 years to transition their system -- and then ended up with a system that only covered 60% of Chilean workers. And of those 60%, less than half of them actually accumulated enough in savings to be free of public assistance once they reached retirement.

Sean said...

Regarding the transition costs, let me clarify my point.

The $600B-$1.1T figure is what it would cost the U.S. based on the % of GDP Chile has experienced. And even today, Chile is still financing the transition at about 4% of GDP (and will continue to until 2037).

John said...

Chile Retirement
Yahoo Cain Fact Check
Congressional Research
Seizing Pensions

It is interesting that you brought this up. On my flight back from Seattle I sat next to a older financial management advisor who was having his clients cash in their IRA's, 401K's, etc as fast as possible, even if it meant paying additional taxes...

He was seriously concerned that the USA (primarily Democrats) were going to work to seize these funds for Social Security's replacement program... Apparently this was what happened as the program was instituted in Chile.

jerrye92002 said...

Sean, thanks for the info on the Chilean system. Yes, I suspect transition costs WERE very high because they essentially went "cold turkey." What I and many others have proposed for the US is a more gradual transition (which should have started 20 years ago) and thus has much lower transition costs. But since there is no money in the trust fund, the cost of keeping up benefits is already being subsidized by the general fund, so I don't see transition cost as being a big obstacle.

As for the fact that some don't save enough under the mandatory "IRA" provisions in Chile, and end up on public assistance, I think that's marvelous. If you don't make enough to save enough, you SHOULD be on some form of assistance (or continue working).

jerrye92002 said...

I like to stay on topic, I do. So consider this: SS is a socialist system of financing retirement. It takes from working people to finance benefits for the non-working. Privatize social security, even if it's mandatory savings like Chile has, and you have a capitalist retirement system, the major benefit of which is the creation of wealth rather than destruction of it.